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State budgeting doesn't add up (Whipple)

Delaware’s legislature overshot the end of June budget deadline last year, and no one was happy about the last-minute tax increases and spending cuts. Whatever exactly had gone wrong, there was general agreement that Delaware’s political leaders had “blown it.” [General Assembly] must do better next year, News Journal, 7/9/17.

“. . . most reasonable outside observers believe the state needs both spending and revenue reform.” Start talking now, no need to wait until 2018. And let the Democrats make the first move by following through on their agreement to “study ideas like school district consolidation, Medicaid reform, and ways to help the state more responsibly spend its budget surpluses. [They should offer] real plans to save money, and pay the political price of implementing the plans.” Then Republicans “need to step up and vote for revenue,” which could take the form of income tax increases or property tax reassessment/rate increases.

This year’s budget process should be comparatively painless based on current revenue estimates (which have been fattened by the tax increases enacted in 2017), but the respite may be brief. Note this chart from the governor’s budget presentation, which shows future state outlays relentlessly outstripping revenue sources.There has been some activity in each of the cost cutting areas mentioned in the News Journal editorial, but it seems to primarily consist of conducting studies versus actually cutting costs.

(1) SCHOOL DISTRICT CONSOLIDATION – The public-school system in Delaware is run by a large number of school districts (19), which in turn are supervised by a state Department of Education. This top-heavy bureaucracy is expensive, and it also leads to much second guessing of decisions made by administrators at the school level. Savings from consolidating school districts could easily amount to $50 million per year or more, but the changes required (e.g., numerous people in the existing structure losing their jobs) would be difficult. Prior studies of the matter have gone nowhere.

In the wake of missing its budget deadline last year, the General Assembly authorized a task force to restudy school district consolidation with a reporting deadline of January 30, 2018. Most of the task force members appointed had a vested interest in preserving the status quo, however, and it was quickly decided that the study goal would be to “benefit children” versus reducing overhead or enhancing efficiency. Will school district consolidation task force make the grade? (Whipple), TCC of DE newsletter, October 2017.

The reporting deadline is now long past, and there are no signs that the task force will recommend the consolidation of any school districts. As a consolation prize, there may be some recommendations about consolidating school district procurement, etc. Government Efficiency and Accountability Review Board, (GEAR) annual report, 12/1/17.

(GEAR is a high level, interdepartmental advisory group that was established early in the Carney administration. It is charged with “developing recommendations for developing efficiency and effectiveness across State government, including by improving the strategic planning process, improving the use of metrics in resource allocation decisions and improving continuous improvement practices.” Whew, that’s a mouthful!)

After noting plans to partner with school district superintendents and business managers to identify and implement cost saving opportunities, the GEAR report sidesteps potential benefits of school district consolidation. “These issues must be addressed by the Governor and General Assembly, working in partnership with the Department of Education, school districts and other parties impacted by such potential consolidations.”

(2) HEALTHCARE – A high-profile effort is underway to benchmark overall healthcare spending in Delaware and develop strategies for bringing down costs while simultaneously improving the results. Hmm, sounds like the “all gain, no pain” claims that were used to sell Obamacare a few years ago. Governor John Carney and Department of Healthcare and Social Services (DHSS) Secretary Kara Odom Walker co-authored a column on the benchmarking project last September, and Walker recently wrote a follow-up column. Get serious on healthcare costs, Kara Odom Walker, News Journal, 2/11/18.

While it’s pleasing to think of patients, caregivers, doctors, nurses, hospital, employers, etc. all working together “to find opportunities to eliminate waste and reduce unnecessary care,” the interests and motivations of these people and groups are far from congruent.

Who should decide whether a given medical test or procedure is or isn’t necessary? If the answer is government bureaucrats or insurance companies, there may be a tendency to control costs by rationing care. On the other hand, doctors might seek to maximize profits.

What’s the incentive for patients to control costs if a relatively minor portion of the money is perceived to be coming out of their own pockets? Perhaps the real problem with the healthcare system is not the supposedly obsolete fee for service model, but rather the lack of choice and competition in the healthcare and healthcare insurance markets.

If a network of “accountable care organizations” assumed total responsibility for healthcare outcomes, how could it be ensured that ACOs would faithfully represent the interests of the patients versus their own institutional self-interest?

For all the hype about the benchmarking strategy, there isn’t much evidence that state government expenditures would be reduced. This initiative is reflected in the governor’s FY 2019 budget charts as a benefit (fostering a healthier Delaware) versus a cost savings. The overall budget for the DHSS is shown as increasing from $1.178 billion in FY 2018 to $1.194 billion in FY 2019. And although a $6 million Medicaid cost savings is shown on another chart, no connection to benchmarking is noted.

The GEAR annual report describes the healthcare benchmarking study as “work [that] is important for the entire State budget as well [as] Delaware’s economy,” but indicates that GEAR’s “focus will be on achieving efficiencies within the department.” Opportunities cited include reducing DHSS operating costs (overtime, leasing, fleet services) and increasing DHSS revenues (service fees, federal funding, etc.)

(3) OTHER AREAS – Aside from the GEAR report, which speaks grandly of more systematic use of strategic planning and performance budget processes, creating a financial services roundtable to identify continuous improvement opportunities, etc., one would be hard pressed to find much evidence of current cost cutting efforts in the state government.

In his State of the State address, the governor proposed a number of new spending initiatives but "no proposed spending cuts were offered during the 30-minute speech." Carney outlines priorities for state, Scott Goss, News Journal, 1/19/18. And in the breakdown of general fund spending by department (23 functions with a recommended FY 2019 budget of $4.25 billion), only “other elective” (comprised of the lieutenant governor and the offices of the treasurer, auditor and insurance commissioner) is shown as suffering a significant cut ($2.3 million) from the previous year.

If the state’s political leaders aspire to bend the government cost curve down, they have a long way to go.